Real Estate Contract Terms | What Is a Home Sale Contingency?

If you are planning a relocation or need to buy or sell an estate, you probably stumbled on the term sale contingency. Wondering what it means? In the broader sense, contingency means a possible negative economic event that may occur in the future, but is not likely. A contingency is used as a way to plan and mitigate certain financial risk by assuming a worst-case scenario.

A home sale contingency is a standard contingency clause included in the real estate contract or an offer.  With this clause in place, the transaction depends upon certain criteria, most commonly, the sale of the buyer’s estate. If the home sells by a specified date, the deal can move forwards. If, however, the house doesn’t sell the buyer can back out of the sale.

Here is what buyers and sellers need to know about home sale contingency.

Types of Home Sale Contingencies

The sale contingencies fall within two main categories:

  • Settlement Contingency
  • Sale and Settlement Contingency

A settlement contingency is included in the contract if the buyer has already marketed their property and needs to sell by certain settlement date. Since an estate is not truly sold until closing day, the sale may fall through at any time. This clause protects the buyer if this happens and prohibits the seller from accepting other offers during that period.

If the buyer successfully sells their home by a certain date, the contract remains valid and they can successfully complete their relocation.  Otherwise, the deal can be terminated.

A sale and settlement contingency depends on whether the buyer sells and settles their existing home. Unlike the sale contingency, this type of contract clause allows the seller to continue to market their property to other potential buyers.  In case the estate’s owner gets a second offer, the buyer has a certain time frame (between 24-48 hours) to remove the contingency.  If the purchaser fails to do that, the seller has the right to accept the second offer and return the deposit of the first buyer.

Other Common Real Estate Contingencies

  • Home Inspection
  • Appraisal
  • Mortgage Approval

These contingencies allow the buyer to withdraw their offer, without losing their deposit. On the other hand, the seller can continue to market their property.

Home inspection contingency is probably the most important of the three. It provides the buyer with a right to have the home professionally inspected. If something is wrong with the property, the potential purchaser can request to be fixed or can back out of the sale. Home inspection contingency is advisable before moving house to a new place.

Appraisal contingency involves a third party hired by the lender who needs to evaluate the fair market value of the property. If the sale price is higher than the appraisal value, the buyer can terminate the contract.

Mortgage contingency protects both the seller and the buyer. Under this clause, the buyer is obliged to obtain a loan within a specific period to cover the mortgage. If the buyer cannot acquire the loan, they can walk away of the sale and take their down payment back.

No need to memorize contract terms and study contingencies when you team up with an agent – they’ll do it for you. Find a First Team agent and get yourself ready for your home sale or purchase. Depending on the state of the market and your individual needs, your agent will help determine what home sale contingencies make sense for you and your real estate goals.

This guest post is written by Ella Andrews, granted on behalf of:

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